Saturday, February 4, 2012

Create Value, Not Jobs

Create Value, Not Jobs

Treat all economic questions from the viewpoint of the
consumer for the interests of the consumer are the interests of the
human race.
-Frederic Bastiat

Public discourse on matters of the economy is and has always been
dominated by the idea that the road to prosperity is to create jobs. In a
moment of high unemployment, the “create jobs” rhetoric becomes that
much more prevalent. We get a “Jobs Bill“; opponents of Obama’s reform call it “job destroying“; after a brief period of discussing deficits and debt national news outlets turned right back to talking about jobs.
Reading Tyler Cowen’s The Great Stagnation and Erik Brynjolfsson and Andrew McAfee’s Race Against the Machine,
I was surprised to see that they considered lack of jobs to be one of
the key problems of our times. Surprised, because I have become
accustomed to economists arguing that jobs are not what matter, wealth
is. Upon closer examination, however, I think that what they are
arguing is consistent with that–they are putting it into the rhetoric of
jobs because that is accessible to most people, but what they are
saying is different from what a politician means when he calls for job
creation.

A Very Human Propensity

This division of labour, from which so many advantages
are derived, is not originally the effect of any human wisdom, which
foresees and intends that general opulence to which it gives occasion.
It is the necessary, though very slow and gradual, consequence of a
certain propensity in human nature which has in view no such extensive
utility; the propensity to truck, barter, and exchange one thing for
another.
-Adam Smith, Inquiry into the Nature and Causes of the Wealth of Nations

In a barter economy, things are straightforward. I can only get
something I want from you if I give you something that you want. I have
to provide you with something of value.
This is still how the economy works on a fundamental level; money is
just an intermediary between barter exchanges. Instead of giving you
something you want, I give my employer or my customer something that
they want. They give me money, which I can give to you so that you can
turn around and get something you want. The person that you give it to
accepts it because they can turn around and exchange it for something
that they want.
Sensing a theme? Wealth is merely the ability to get things that we want.
Since most of us are not independently wealthy, we have to work to
create things that other people want in order to get what we want. The
most common way to do this since the dawn of the industrial revolution
has been to work for someone who needs human labor to accomplish some
end–an end that is valued by consumers.
But it isn’t the only way–Henry Ford wasn’t an “employee”; he was an
entrepreneur who developed more efficient ways to provide consumers with
something of value at a lower cost. Moreover, he figured out how a
little value could be added by large numbers of workers in the process.
There are also freelancers; people who are not employees nor
employers, but work for specific clients at specific times. Rather than
providing a valued service steadily over time, they do it on a case by
case basis, and depending on the industry can face lean seasons and busy
seasons.

Value, Not Work

The point is, our goal should never be to “create jobs”. Our goal
should be to enable people to contribute something valued by other
people. The value is the point, not the work. If someone finds a way to
provide value to hundreds of millions of people and it requires no more
effort from them than batting their eyelashes, that would be a win.
So why are economists like Cowen and Brynjolfsson talking about jobs?
The stories they are telling, while far from the same, have a common
theme which I interpret as follows: the forward march of technology has
made it very difficult for people who have traditionally had low-skill
or even middle-skill occupations to contribute value. As Arnold Kling succinctly put it:

The paradox is this. A job seeker is looking for
something for a well-defined job. But the trend seems to be that if a
job can be defined, it can be automated or outsourced.

He goes on to say that people who are capable of working in “less
structured environments” are going to get a premium at this moment–in
other words, people like entrepreneurs and freelancers.
His story, which he used to call the Recalculation but lately has referred to as Patterns of Sustainable Specialization and Trade (PSST), goes like this:

One industry overwhelmingly dominates the economy (first agriculture, then manufacturing).

Rapid technological change enormously increases the productivity of
that industry while providing a lot of untapped potential in other
areas.

Since many fewer workers are needed now, there’s a period of massive
unemployment before entrepreneurs figure out how to make the most
valuable use of all the surplus labor.

A new pattern of sustainable specialization and trade emerges that is optimal to the current state of technology.

In Kling
and Brynjolfsson’s story, we’re at step 3. Technology has made it easy
to replace workers with machines in old industries, but it is not yet
obvious how those workers can contribute value in the young industries. Solving that problem is non-trivial.

An Important Distinction

This is not a matter of semantics. If you think the problem is a lack
of jobs, all sorts of dangerous “solutions” may come to mind. Anything
from having the government hiring en masse to do make-work, valueless
jobs, to setting high tariffs and immigration restrictions so that
domestic companies and labor do not have any foreign competition.Frederic Bastiat
was a 19th century French economic journalist who spilled a lot of ink
attacking such foolish notions. You have to think about wealth from the
perspective of the consumer. Yes, there would be more “work” to do if we cut off trade and immigration, but it would also impoverish just about everyone
as the cost of getting anything would skyrocket. Getting a job is not
an end unto itself; the whole point is to trade our labor for other
things that we want. Getting a job at the cost of not being able to
afford anything is an absurd proposition.
As for make-work jobs, I would rather the government send the poor a
check to do what they want with than to force them to “play real job”.
At least then they would have the time to think about how they can
contribute something of real value!